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Available unencumbered assets are important as they have the potential to be used as collateral to raise additional secured funding in secondary markets and also possible at the RBA, and as such, may potentially be additional sources of liquidity for the DI

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Trend liquidity needs are liquidity needs that relate to the:


A) trends occurring in the community where, for example, loan growth exceeds deposits growth.
B) trends occurring in the community where, for example, deposit growth exceeds loan growth.
C) demand for liquidity that fluctuates with seasonal factors.
D) demand for liquidity that fluctuates with seasonal factors within a community

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Consider the following hypothetical data:  Sources of liquidity  Total cash-type assets $3000 Maximum borrowed funds limit $22000 Excess cash in exchange settlement account (ESA)  $1000 Uses of liquidity  Funds borrowed $12500 ESAfunds $500\begin{array} { | l | l | } \hline \text { Sources of liquidity } & \\\hline \text { Total cash-type assets } & \$ 3000 \\\hline \text { Maximum borrowed funds limit } & \$ 22000 \\\hline \text { Excess cash in exchange settlement account (ESA) } & \$ 1000 \\\hline & \\\hline \text { Uses of liquidity } & \\\hline \text { Funds borrowed } & \$ 12500 \\\hline \text { ESAfunds } & \$ 500 \\\hline\end{array} What is the FI's net liquidity position?


A) ($12 500 + $500) - ($3000 + $22 000 + $1000) = -$13 000
B) ($3000 + $22 000 + $1000) - ($12 500 + $500) = $13 000
C) ($12 500 - $500) = $13 000
D) ($3000 + $22 000 + $1000) = $26 000

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The Reserve Bank of Australia (RBA) took a number of temporary actions during the global financial crisis to provide liquidity and avert financial system disturbance.Which of the following were not actions supplied by the RBA?


A) Extension of collateral eligible for open market operations.
B) Longer term repos offered daily that provided funding for six-month and one-year terms.
C) Residential mortgage-backed securities and asset-backed commercial paper.
D) A foreign exchange swap facility to address the global shortage of euro in financial markets.

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In practice, an FI that has 15 per cent of its liabilities in demand deposits and other transaction accounts knows that normally only a small proportion of these deposits will be withdrawn on any given day.

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Stored liquidity management is a liability-side adjustment to the balance sheet to cover a deposit drain

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The liquidity index will always lie between -1 and +1.

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The aim of open market transactions is to influence the level of liquidity in the market.

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Fire-sale price refers to the price received for:


A) an asset that has to be sold at half price
B) a liability that has to be sold at half price
C) an asset that has to be sold immediately
D) a liability that has to be sold immediately

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Which of the following statements is true?


A) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay shareholders immediately.
B) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to finance new loan demand.
C) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay fully and promptly all maturing liabilities.
D) Immediate liquidity obligations refer to the liquidity required of an FI so that it has sufficient funds to repay all short-term liabilities immediately.

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Cyclical liquidity needs are those which vary with the:


A) seasonal cycle
B) business cycle
C) weather cycle, for example influencing droughts
D) FI's maturity cycle

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Which of the following statements is true?


A) In Australia, depositors received preference over other liability holders in the event of a liquidation of an FI.
B) In Australia, depositors receive preference over other liability holders in the event of a liquidation of an FI being replaced by a financial claims scheme to protect deposit accounts.
C) In Australia, only customers of the major banks are covered by deposit insurance.
D) Australia has had a well-developed deposit insurance system for decades that has protected depositors without a bank failure for over a century.

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An FI can manage a drain on deposits or an exercise of a loan commitment in two major ways, these being purchased liquidity management and stored liquidity management.

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Net asset value is the:


A) product of the price at which a managed fund's shares are sold and the number of outstanding shares
B) price at which a managed fund's shares are sold
C) value of an investor's holding in managed fund's shares
D) None of the listed options are correct.

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Discuss the advantages and disadvantages of stored liquidity management and purchased liquidity management.In your opinion, which is the better approach for a DI to adopt?

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If the DI has a net deposit drain, it ne...

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Which of the following statements is false?


A) It is difficult to isolate which part of past deposits and loan fluctuations is due to cyclical liquidity.
B) Forecasting future liquidity needs based on past patterns is always risky due to changes in seasonal patterns, regulation and economic conditions.
C) Liquidity planning tools typically ignore cyclical liquidity needs and liquidity needs due to FI confidence crises.
D) None of the listed options are correct.

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Stored liquidity management is:


A) a liability-side adjustment to the balance sheet to cover a deposit drain
B) an asset-side adjustment to the balance sheet to cover a deposit drain
C) an equity-side adjustment to the balance sheet to cover a deposit drain
D) All of the listed options are correct.

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A bank run refers to a sudden:


A) but expected increase in deposit withdrawals from an FI
B) and unexpected increase in deposit withdrawals from an FI
C) and unexpected increase in customers that wish to undertake business with the FI
D) but expected increase in customers that wish to undertake business with the FI

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APRA requires every FI to hold sufficient liquid assets to meet a name crisis situation.

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What are typical reasons for abnormal deposit drains?


A) Concerns about an FI's solvency relative to other FIs.
B) Failure of a related FI leading to heightened depositor concerns about the solvency of other FIs.
C) Sudden changes in investor preferences regarding holding non-bank financial assets relative to deposits.
D) All of the listed options are correct.

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